Thursday, June 13, 2013

It has been a bloody market today. The stock market dives to 6,114.08 or -6.75%, the largest drop since 2008. Why is this happening despite our emerging economy?

To explain this, we have to look what's happening outside the Philippines:

Japan's Stock Market Plunge

Japan contributes largely to the worries in the Asian financial market. Nikkei is down by more than 6 percent today. The drop is among the many we've seen in the past few weeks which ultimately caused Japan to officially enter the bear market. Everyone is cautious on what's may happen next.

The quantitative easing of its central bank is backfiring, plus other global economic worries (below) also factor in.

U.S. Fed to Lessen QE

Quantitative easing (QE) is a solution that the U.S. government devised to save its economy from crashing. It does that by buying billions worth of bonds each month in order to stop the prices from free-falling. This was proven effective in the short period it was established, but now, the market seems to be dependent on govt's stimulus. There's a lot of uncertainty what will happen when the govt stops quantitative easing. This uncertainty breeds fear, which in turn, drives the stock market down. And when the U.S. stock market falls in this global economy, everyone also falls.

China's Economy is Slowing Down

China is the industry engine of the world, almost everything is made in China. When China reports that its economy is slowing down, it reflects that the global demand is slowing down which again invokes fear and uncertainty.

There are a lot of uncertainties in the global market, not to mention the economic problems in Europe. These uncertainties multiplies the effect in our stock market today triggering a major sell-off. Closely monitor what happens to Japan, U.S. and China and you'll have an idea what will happen to the global financial economy and how it will affect the Philippine stock market.

I believe we area nearing a global financial catastrophe if this continues and if there are no positive news to impact the market. Fortunately for the Philippines, we may still have an ace card: MOODY's upgrade rating which is expected soon, will it trigger a reversal from our market slump?

What is to be done during these times

The problem is no one knows how low it'll get. There are some signs to look for like when the market stops plunging and moves sideways. The good thing is the market phases do not usually happen in one day so you'll have time to react.

Market Emotion

So where do you think are we? Probably between "Fear" and "I'm out"?

The market is very volatile, during this time, investors protect their money by liquidating them (to avoid the effects of further depreciation). People withdraw their investments from mutual funds, uitf, stock market etc. This has an adverse effect on the stock market because it will drive stock prices down, which is currently what's happening, locally and abroad. The net foreign sell (NFS) in our stock market is huge in the past few weeks.

But again, no one knows how low we'll reach. Are we at the lowest point this year? If we are then it's a great opportunity to buy, if we're not then it's time liquidate. We'll see :)

Monday, June 10, 2013

I always had a disclaimer that I was afraid that the stock market was growing too fast. Now that my fear has come to pass, I got less reason to be afraid of. The market has corrected, and I believe it's still correcting. It's relatively a good time to buy this month when the market is down (As long as PSEi is below 6900).

My list is more of a guide on which stocks to buy, it's still up to you to research about it, and definitely up to you WHEN to sell them (E.g. When you feel we have a major correction happening, or in time of crisis / recession, or when you reached your target price, or on whatever technical analysis you may have.)

MEG / MEGW1
[Buy below P3.9 / P2.9] Even if it was removed from MSCI Index, I believe Megaworld Corp (MEG) is still undervalued compared to other property units. This is for long term holding. COL Financial's target price for Megaworld is P9 which I think is too good to be true, although MEG has a lot of growth potential. Its current P/E at P3.83 is 15.3, still relatively low compared to other companies in the same industry. Plus what I love about MEG, is it has its warrants counterpart MEGW1 which has more room for profit growth (but less liquid).

There is ONE problem that I see though, which would make it a bumpy ride: In my previous post, I speculated that Alliance Global (AGI. Parent company of MEG), will merge its property units. If this is true, MEG will have a similar fate to SMPH. In which SMPH's (the surviving entity) share price went down and its acquisitions (SMDC, HP) went up. It is possible that MEG's share price will go down temporarily because of this. Anyway, it's still a theory.

SMPH
[Buy below P19] After the merging of SM's property units (July 5?), the upside is big (~18%) if it reaches its 52-week high. But the new SMPH will be bigger and more valuable since it will now hold all the property stake of SM. I'm yet to compute the exact figures.

BDO
[Buy below P89] It consolidated around 92-93 (~8% upside) before and has a 52-week high of 99 (~13% upside). Even though the upside is not that great and its P/E is already high (21), BDO's popularity makes it a good candidate for a quick play. And basing on its Q1 earnings, its growth maybe above expectations.

TA
[Buy below P2.40] Based on its Q1 earnings, its growth potential is also promising. Since its shareprice already went up, I would wait for an opportunity to buy it at a lower price. Also there is possibility that TA will give property div to its oil exploration company.

If I wrote this last week, I would've added BPI [Buy below P94], MWC [Buy below P37], AGI [Buy below P23] and ALI [Buy below P31]. You can still wait if their prices will go down this month. I bought BPI when PSEi was in 6600 levels, but now it has gone up and the upside is not that great anymore. Same goes for MWC (my favorite stock, I buy it whenever there's a great opportunity for it). AGI, like BDO, is very popular; its share price bounces back quickly when the market recovers.

There are a lot of bargains in the stock market, since the market has already corrected significantly (and may continue to do so), this time is a good opportunity to buy (wait for days that the market is down). But still be cautious, again, the correction may not be over, I am guessing it will still continue for around 1-2months. But hey, buying this month is definitely better than buying last month (esp. at 7400 PSEi). You are lucky if you followed the SELL IN MAY AND WALK AWAY strategy, hehe.

Another thing, this year, and possibly for a few years more, our construction industry is on a boom! Cement companies may be a good long-term investment (HLCM, LRI)

Disclaimer: Speculation is the mother of all evil so act at your own risk. The statements below are purely speculative.

In quick summary: My speculation is Alliance Global Inc. (AGI) properties would be merged into one, the surviving entity will probably be Megaworld Corp. (MEG). Suntrust (SUN) will be left as a shell company for a more profitable venture (to be backdoored, Emperador? Travellers? Dunno).

AGI will hit two birds with one stone if it were to do this. SM already did it, merged its property units to SM Prime (SMPH), which will make SMPH larger than Ayala Land (ALI). To be competitive, AGI may need to do the same with its property units Global-Estate Resorts (GERI), Empire East (ELI) and Suntrust (SUN). In the merger, ELI and GERI will benefit from this (much like what happened to SMDC and HP). SUN already sold its property stake to MEG, which spurred speculations (SUN's share price up by 30%-40% today).

So why not just merge SUN with the others. It may mean AGI has bigger plans for SUN. There was a rumor before that Travellers International (Part owner of Resort's Word) will use SUN as a backdoor which lead to SUN's price to shoot up, but the rumor was silenced when AGI disclosed that Travellers Group filed for its IPO (means it won't use a backdoor listing).

Now, SUN is more or less a shell company when it sold its property stake to MEG. What is the purpose of this? Could be used as a backdoor for Emperador? Or maybe Travellers changed its mind? But in any case, the speculation is that it's highly probable, SUN will be used as a backdoor for another company.

[Update Aug 14, 2013] Seems the speculation above is coming to life. AGI announced property mergers, CHECK! SUN was left as a shell company, CHECK! And now, SUN just released a disclosure that allows existing shareholders to buy additional 2.5 shares at P1.0.

This clearly indicates a backdoor is brewing. Why? If you have a shell company, a company without assets, why would you conduct a stock rights offering. It means there is a motive to revive this shell company ito a profitable venture. The question, again, is who will it be? Emperador? Nobody knows yet since it's not included in the disclosure, which means more speculation and hype!

If you can buy SUN below P1.00 it MIGHT be a good buy, but I doubt you will be able to buy shares below P1.00 (if people know the value of their existing shares)